Morgan Kelly is professor of economics at University College Dublin and one of the few economists making serious dissenting noises about the Irish Government's current economic strategy. I have quoted him at length before in Why God made Economists. Again he says it all so much better than I can...

It is no longer a question of whether Ireland will go bust, but when. Unlike Greece, our woes do not stem from government debt, but instead from the government's open-ended guarantee to cover the losses of the banking system out of its citizens' wallets.

Even under the most optimistic assumptions about government spending cuts and bank losses, by 2012 Ireland will have a worse ratio of debt to national income than the one that is sinking Greece.

On the face of it, Ireland's debt position does not appear catastrophic. At the start of the year, Ireland's government debt was two- thirds of GDP: only half the Greek level. (The State also has financial assets equal to a quarter of GDP, but so do most governments, so we will focus on the total debt.)

Because of the economic collapse here, the Government is adding to this debt quite quickly. However, in contrast to its inept handling of the banking crisis, the Government has taken reasonable steps to bring the deficit under control. If all goes to plan we should be looking at a debt of 85 to 90 per cent of GDP by the end of 2012.

This is quite large for a small economy, but it is manageable. Just about. What will sink us, unfortunately but inevitably, are the huge costs of the bank bailout.

We can gain a sobering perspective on the impossible disproportion between the bailout and our economic resources by looking at the US. The government there set aside $700 billion (557 billion) to buy troubled bank assets, and the final cost to the American taxpayer is about $150 billion. These sound like, and are, astronomical numbers.

But when you translate from the leviathan that is America to the minnow that is Ireland, it would be equivalent to the Irish Government spending 7 billion on Nama, and eventually losing 1.5 billion in the process. Pocket change by our standards.

Instead, our Government has already committed itself to spend 70 billion (40 billion on the National Asset Management Agency - Nama - and 30 billion on recapitalising banks), or half of the national income. That is 10 times per head of population the amount the US spent to rescue itself from its worst banking crisis since the Great Depression.

What ultimately matters for national solvency, however, is not how much the State invests in its banks, but how much it is likely to lose. It is alright to invest 70 billion, or even 100 billion, to rescue your banking system if you can reasonably expect to get back most of what you spent. So how much are the banks and, thanks to the bank guarantee, you the taxpayer, likely to lose?

Let's start with the 100 billion of property development loans. We'll be optimistic and say the loss here will be one-third. Remember, Anglo has already owned up to losing about 25 billion of its 75 billion portfolio, so we have almost reached that third without looking at AIB and Bank of Ireland. I think the final loss will be more than half, but we'll keep with the third to err on the side of optimism.

Next there are 35 billion of business loans. Over 10 billion of these loans are to hotels and pubs and will likely not be seen again this side of Judgment Day. Meanwhile, one-third of loans to small and medium enterprises are reported already to be in arrears. So, a figure of a 20 per cent loss again seems optimistic.

Finally, we have mortgages of 140 billion, and other personal lending of 20 billion. Current mortgage default figures here are meaningless because, once you agree a reduction of mortgage payments to a level you can afford, Irish banks can still pretend that your loan is performing.

Banks in the US typically get back half of what they loaned when they foreclose, but losses here could be greater because banks, fortunately, find it hard to take away your family home. So Irish banks could easily be looking at mortgage losses of 10 per cent but, to be conservative, we will say five.

So between developers, businesses, and personal loans, Irish banks are on track to lose nearly 50 billion if we are optimistic (and more likely closer to 70 billion), which translates into a bill for the taxpayer of over 30 per cent of GDP. The bank guarantee may have looked like "the cheapest bailout in the world, so far" in September 2008, but it is not looking that way now.

Adding these bank losses on to the national debt means we are facing a debt by late 2012 of 115 per cent of GDP. If we are lucky.

He goes on...

There is more. The ability of a government to service its debts depends on its tax base. In Ireland the proper measure of tax base, at least when it comes to increasing taxes, is not GDP (including profits of multinational firms, who will walk if we raise their taxes) but GNP (which is limited to Irish people, who are mostly stuck here). While for most countries the two measures are the same, in Ireland GDP is a quarter larger than GNP. This means our optimistic debt to GDP forecast of 115 per cent translates into a debt to GNP ratio of 140 per cent, worse than where Greece is now.

And even this catastrophic number assumes that our economy does not contract further. For the last two years the Irish economy has not been shrinking, so much as vaporising. Real GNP and private sector employment have already fallen by one-sixth - the deepest and swiftest falls in a western economy since the Great Depression.

And on...

The Irish economy is like a patient bleeding from two gunshot wounds. The Government has moved competently to stanch the smaller, budgetary hole, while continuing to insist that the litres of blood pouring unchecked from the banking hole are "manageable".

Capital markets are unlikely to agree for much longer, triggering a borrowing crisis for Ireland. The first torpedo, most probably, will be a run on Irish banks in inter-bank markets, of the sort that sank Anglo in 2008. Already, Irish banks are struggling to find lenders to leave money on deposit for more than a week.

Ireland is setting itself up to present an early test of the shaky EU commitment to bail out its more spendthrift members. Probably we will end up with a deal where the European Central Bank buys Irish debt and provides continued emergency funding to Irish banks, in return for our agreeing a schedule of reparations of 5-6 per cent of national income over the next few decades.

To repay these reparations will take swingeing cuts in spending and social welfare, and unprecedented tax rises. A central part of our "rescue" package is certain to be the requirement that we raise our corporate taxes to European levels, sabotaging any prospect of recovery as multinationals are driven out.

The issue of national sovereignty has for so long been the monopoly of republican headbangers that it is hard to know whether ordinary, sane Irish people still care about it. Either way, we will not be having it around much longer.

We have long since left the realm of easy alternatives, and will soon face a choice between national bankruptcy and admitting the bank guarantee was a mistake. Either we cut the banks loose, or we sink ourselves.

While most countries facing bankruptcy sit passively in denial until they sink - just as we are doing - there is one shining exception: Uruguay. When markets panicked after Argentina defaulted in 2002, Uruguay knew it could no longer service its large external debt. Instead of waiting for a borrowing crisis, the Uruguayans approached their creditors and pointed out they faced a choice.

Either they could play tough and force Uruguay into bankruptcy, in which case they would get almost nothing back, or they could agree to reduce Uruguay's debt to a manageable level, and get back most of what they lent. Realising Uruguay's problems were largely not of its own making, and that it had never stiffed its creditors in the past, the lenders agreed to a debt restructuring, and Uruguay was able to return to debt markets within a few months.

In one way, our position is a lot easier than Uruguay's, because our problem is bank debt rather than government debt. Our crisis stems entirely from the Government's gratuitous decision on September 29th, 2008, to transform the IOUs of Seán FitzPatrick, Dermot Gleeson and their peers into quasi-sovereign instruments of the Irish state.

So what must be done?

Our borrowing crisis could be solved before it even happens by passing the same sort of Special Resolution legislation that the Bank of England enacted after the Northern Rock crisis. The more than 65 billion in bonds that will be outstanding by the end of September when the guarantee expires could then be turned into shares in the banks: a debt for equity swap.

We need to explain that the Irish State has always honoured its debts in the past, and will continue to do so. However, the State is a distinct entity from its banks and, having learned the extent of the banks' recklessness, we now have no choice but to allow the bank guarantee to lapse and to share the banks' losses with their bondholders. It must be remembered that when these bonds were issued they had no government guarantee, and the institutions that bought them did so in full knowledge that they could default, and charged an appropriate rate of interest to compensate themselves for this risk.

Freed of the impossible bank debt, the Irish State could concentrate on the other daunting problems left by its decade-long credit binge: unemployment, lack of competitiveness and indebted households. The banks would be soundly capitalised and able to manage themselves free of political interference.

There are two common objections to sharing the banks' losses with their bondholders, both of them specious. The first is that nobody would lend to Irish banks afterwards. However, given that soon nobody will be lending to Irish banks anyway, this is not an issue. Either way, the Irish State and banks are facing a period of relying on emergency funding. After a debt-for-equity swap, Irish banks, which were highly profitable before they fell into the clutches of their current "management", will be carrying little debt, making them attractive credit risks.

The second objection is that Ireland would be sued in every court in Europe. Again wrong. Under the EU's winding-up directive, the government that issues a bank's licence has full power to resolve the bank under its own laws.

Chris Cook would undoubtedly agree to the debt for equity swap idea...

Of course, expecting politicians to sort out the Irish banks is pure fantasy. Like their British and American counterparts, Irish politicians have spent too long believing that banks were the root of national prosperity to understand that their interests are frequently inimical to those of the rest of the economy.

The architect of Uruguay's salvation was not one of its politicians, but a technocrat called Carlos Steneri. The one positive development in Ireland in recent months is that control of the banking system has passed from the Government to similar technocrats.

This transfer did not take place without a struggle - one that was entirely missed by the media. When Anglo announced they wanted to take over Quinn Insurance despite the objections of the Financial Regulator, journalists seemed to view this as just another case of Anglo being Anglo. They should have remembered that Anglo cannot now turn on a radiator unless the Department of Finance says so, and what was going on instead was a direct power struggle between the Financial Regulator and the Minister for Finance.

Having been forced to appoint a credible Financial Regulator and Central Bank governor - first-rate ones, in fact - the Government must do what they say. Were either Elderfield or Honohan to resign, Irish bonds would straight away turn to junk.

Now you understand the extraordinary shift in power that lay behind the seeming non-headline in this newspaper last month: "Lenihan expresses confidence in regulator".

The great macroeconomist Rudiger Dornbusch observed that crises always take a lot longer to happen than you expect but, once started, they move with frightening rapidity. Or, as Hemingway put it, bankruptcy happens "Slowly. Then all at once." We can only hope that the Central Bank is using whatever time remains to us as an independent State to devise an intelligent Plan B - or is it Plan C?

A SENIOR Minister has described UCD academic Prof Morgan Kelly as a "prophet of doom" for claiming the country will become insolvent unless the Government abandons its policies to bail out the banks.

Minister for Communications Eamon Ryan said yesterday he disagreed profoundly with the views expressed by Prof Kelly in an opinion piece in The Irish Times on Saturday.

In the article the UCD professor said that if allowed to continue the bank guarantee, Nama, and protections given to senior bank bondholders would leave Ireland with "a worse ratio of debt to national income than the one that is sinking Greece".

However responding yesterday, Mr Ryan said the governor of the Central Bank, Patrick Honohan, who is an international expert in banking crises, had said the Government had got it right. "Most international commentators, including the European Commission, are saying the same."

Well they would say that, wouldn't they, given that it is international investor and bond holders in what were privately owned Irish banks that the Irish taxpayer is now being asked to bail out...

Prof Kelly argued that Ireland's debt position was far worst when one excluded profits generated by multinationals and looked only at gross national product (GNP). But Mr Ryan rejected this analysis and said Ireland was trading in six key areas: tourism; food; energy; financial services; creative services; and high-tech FDI companies and manufacturers.

He said Ireland was doing well in all of those areas, and also argued the foreign companies created hundreds of thousands of jobs for Irish people who paid taxes.

He said Ireland's trading position was much stronger than that of a country like Greece.

"We are trading in the positive. There is more money coming in than going out.

"When the international community look at that and see that Ireland is trading its way out of this, it will ultimately bring the debt burden down."

Yes the real economy is doing relatively well in Ireland with "growth" expected to return this year. Nobody is arguing that foreign multi-nationals aren't making a vital contribution to Ireland's economy. However their profits are repatriated abroad and are not available to pay off Ireland's Sovereign debt. So the more correct and accurate comparator for Ireland's relative indebtedness is the the debt to GNP ratio which compares the size of our debt load to national income.

Meanwhile...

The Department of Finance has also disputed Prof Kelly's analysis. In a statement issued over the weekend, it said it was based on serious inaccuracies.

According to the department, the academic's analysis was extremely pessimistic.

The department also referred to a speech two weeks ago by Prof Honohan to the Small Firms' Association where he said the cost of getting the banks out of trouble was manageable, and that most of them started the boom with a cushion of shareholders' funds that would enable them to pay their debts from their own resources.

So why are Irish taxpayers being asked to stump up possibly another 30 Billion to recapitalise the banks? And what, precisely, are the "serious inaccuracies" in Morgan Kelly's analysis? We are not told. Merely appealing to a speech by the Governor of the Central bank saying what Governors have always said: that "the cost of getting the banks out of trouble was manageable" is not exactly reassuring. That was precisely what the Minister for Finance said when he introduced the bank guarantee in the first place.

Ireland had a PDF: debt to GDP ratio as low as 25% as recently as 2007. That was always going to increase substantially after the fall of the Celtic Tiger and the world financial crisis. However the biggest single contribution to it rising to perhaps 125% will be the Bank guarantee scheme and the determination of the Government to turn private speculative debts into public sovereign debts.

Ireland doesn't need to have a Sovereign debt crisis. It just needs to apply the laws of capitalism and let insolvent private banks - particularly a non systemic business bank like Anglo-Irish - go bust. Offering bond-holders a debt for equity swap - in what would normally be very profitable Irish banks - is in fact a reasonable way to proceed. Those who think this will make it impossible for Ireland to raise Sovereign debt again should remember the Latin American experience. Those who think that the "international investment community" will be forever grateful for Ireland Inc. bailing them out should remember the experience of the Obama administration:

Considering the lengths to which the administration had just gone to rescue Wall Street from collapse, all this behavior might strike a (rational) person as ungrateful and even churlish. One explanation for it revolves around the industry's endemic twin defects: short-termitis and amnesia. "Wall Street is focused on the next five minutes or the last five minutes," says Roger Altman, a deputy Treasury secretary under Clinton and now chairman of the boutique investment bank Evercore Partners. "At the end of Obama's speech at Federal Hall, he said that this community must remember the debt it owes to the taxpayers. But I'm not sure most of Wall Street does remember."

The current focus is on the Government borrowing requirement, which at 14% last year, topped even Greece. As long as you reduce the borrowing requirement faster than GDP this ratio will look better...

In any case, as I said in the diary, the real problem isn't the real economy which is set to grow (marginally) this year despite the Government cutbacks. The real problem (in Ireland's case) is the taking on of an unsustainable debt burden.

The real problem (in Ireland's case) is the taking on of an unsustainable debt burden.

That wasn't a problem when the unsustainable aggregate (household, private, and public sectors together) debt load was taken on. Only when the private sector blew up and the public sector agreed to take the private debt onto its balance sheet. Then it became a problem of public debt and an excuse for dismantling the social safety net.

Because as long as there was a bubble everyone was happy piling up debt to 200% of GDP.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

The objection is that the bankers are seen to be at the very pinnacle of the advanced capitalist system and to be acting in the interests of the wealthiest members of the society. The whole purpose of the society is to enrich the top. Then the rest can bask in the reflected glory of the wealth they have accumulated. To allow the top banks to default would be akin to the Bolsheviks killing the entire family of Tzar Nicholas. The form of government may have changed but basic attitudes obviously have not. At least not for the governing class. When the average Irish voter feels the full impact of what is being done things may be different.

Is there any mechanism to bring down this government and force new elections?

Is there any mechanism to bring down this government and force new elections?

The Greens are the junior partners in the coalition Government and they conducted a mid-term review following a party conference last autumn. I genuinely thought they would reject Nama and precipitate a general election but they chose, instead, to go back into Government following some paltry concessions on fox hunting etc.

Now both parties know they will be devastated if they call an election any time soon and so are cli9nging on for dear life. Indeed the Minister, Eamonn Ryan, quoted in the Diary is a Green party Minister and leading apologist for the Government.

So the short answer is no, this Government will probably run its full term, after which Fianna Fail will no longer be the largest party, and the Greens will be obliterated.

Is there any possibility of a backbench revolt of Greens, possibly with some FFs, bringing this government down? Are there any prominent Green supporters outside the government who could speak out with effect? It is one thing to mortgage the future to save your cronies if you can bring it off, quite another to mortgage your future when the attempt is doomed. I think it is an excellent thing that so much of this debt has to roll over this year. That might shorten the suffering of the Irish people.

A number of countries might well need both fiscal austerity and default, as after all, no one will lend them any money after they've defaulted. The only alternative to austerity then is printing money, which they can't do as they're part of the euro zone.

In the case of Greece, just rolling over the debt may cost 20 to 25% of GDP each year, while paying the interest may be anywhere between 5 and 10% of GDP (less for the older debt, more for the most recently issued).

So, defaulting on the debt would free up over 25% of GDP making spending cuts unnecessary.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

What I meant is that the principal of the maturing debt needs to be paid in full - and that's 20-25% of GDP. Because Greece cannot afford this, they must take a new loan in order to pay the old one. Greece's problem is not that they cannot pay interest, it's that they cannot roll over the debt.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

The critical factor in bankruptcy prevention is the necessity of either paying off or rolling over as-due debt. Most entities today - and I don't care who they are - are not in a position to wind down on debt. Thus they have to work to carry it forward. All of these entities can, therefore, be "blackmailed" by the major financial institutions.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

Imagine if the usual mortgage were 25 years of interest-only plus a full redemption of the principal at maturity, instead of a stream of roughy constant payments gradually amortizing the loan.

The usual bond payment structure is insane and encourages borrowers to engage in "speculative finance" in Minsky's terms. Adverse conditions leading to gradually increasing debt principal ("deficit") are "ponzi finance", at which point the entity is vulnerable to a run (defined as the inability to place debt of any maturity).

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

Can't argue with that, either. Before the Loot and Scoot School of Management came 'round it was possible for companies to amass a sinking fund which, in theory and occasional practice, was used to retire the debt. Now that pile of loot is mere fodder for the predators and makes the company even that more of a take-over target.

Add interest payments are an above the line tax deduction and dividends (cost of equity payments) are an after tax disbursement, and the debt/equity ratios get shoved to the debt side.

Adverse conditions leading to gradually increasing debt principal ("deficit") are "ponzi finance", at which point the entity is vulnerable to a run

I firmly maintain ANY system containing a unregulated - of whatever nature - positive feedback loop WILL jump the shark/reach a Tipping Point. The singular, exact nature of such is dependent on the focus or 'core' of the phenomena or phenomenological system undergoing transition. For banks it's a run. For Logisitic systems it's our old friend the Feigenbaum Logistic Map.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

Off the top of my head, better would be the government selling a series of payments for a fixed time. Could throw in some kind of death duty offset, i.e., the Net Present Value of the payment stream is returned for that, or some, amount of Tax Credit. I'd restrict that to personal taxation.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

Let's start with the 100 billion of property development loans. We'll be optimistic and say the loss here will be one-third. Remember, Anglo has already owned up to losing about 25 billion of its 75 billion portfolio, so we have almost reached that third without looking at AIB and Bank of Ireland. I think the final loss will be more than half, but we'll keep with the third to err on the side of optimism.

Aren't we buying the loans after the recognition of the loss? So we're paying 75B for a 100B portfolio? (Actually, the write-down NAMA is taking is much more than that - more like 60B for a 100B portfolio.)

Is Kelly positing an overall 70% loss in loan value on a portfolio that's pretty mixed and includes big foreign productive assets?

The Nama write-down (47% to date) is to reflect "long term economic value", not current market value, and Kelly is on record as saying it is grossly inflated and unlikely to be realised even over the longer term. So I presume his further loss calculation are on the Nama discounted price the Government Nama has already paid.

In have to agree its not clear from his text, but then his article takes Nama as a given and is looking at the what the total Government debt will look like in the next year or so before much, if any, value has been extracted from the Nama portfolio.

What he is saying is borrowing 100 Billion isn't such a problem if you are getting 100 billion assets in return even though popular discourse on state balance sheets tend to only look at the debt side of the balance. It is our inability to finance and service that debt by (in part) selling of assets or accruing revenue from those assets that is the problem from a debt service/repayment/affordability point of view.

We can gain a sobering perspective on the impossible disproportion between the bailout and our economic resources by looking at the US. The government there set aside $700 billion (557 billion) to buy troubled bank assets, and the final cost to the American taxpayer is about $150 billion.

That's kindly ignoring other routes that have been used to support US banks... starting with unlimited short term money at 0% used by banks to lend money to government at 2-4%...

Northern rock et al is small fry relative to what the Irish Government is doing. There is at least some prospect of the UK getting some return on its "investment" in British banks and it never guaranteed the bondholders like we did.

There's 71 billion in bank bonds due by this December from Anglo Irish, Allied Irish Bank, Bank of Ireland, Irish National Building Society and Irish Life and Permanent. and a further 51.8 billion due after 2010. Source: Prof. Karl Whelan at irisheconomy.ie

Assume they manage to roll them and get an average of, say 6% on 122 billion. 6%, because the spivs in the market don't believe Irish government / bank (now essentially one entity) propaganda.

That's 7.2 billion per anum interest payments that is being guaranteed by the Irish citizen since the blanket guarantee of all types of bond-holders by the Irish government. About 1600 per man, woman and child per anum. Or 6400 per family of two adults and two children.

This with an unemployment rate of around 13.4% (that's the official figure - the real rate is higher, and the rate of underemployment significant.)

It just won't fly. The government refuses to restructure debt in an orderly way, so collapse seems to be the only option.

And the Minister for Finance is talking about EXTENDING the Bond guarantee from September to December instead of using the September end date as a heaven sent opportunity to bail out just before the shit really hits the fan. (as if it hadn't already, but at least a sovereign default could be averted)

When Ann Moore returned to have breakfast with her family after a 12-hour night shift at a nursing home, she found riot police and bailiffs outside her home of 16 years. She and her husband, Christy, and their three children were being evicted. Despite climbing a ladder to the top of the house for six hours in a desperate attempt to thwart the bailiffs, the distressed care worker was eventually coaxed down and taken to hospital. Her home in the southern suburbs of Dublin was promptly boarded up.

The Moores were badly in arrears, owing the council 10,000. For eight months, Ann had been paying back 50 on top of her 100 weekly rent. But in a country where 300,000 homes lie empty, the authorities decided to make the Moores homeless and punish them for their perceived fecklessness. Yet it is the politicians, bankers and developers of Ireland who have been rather more feckless.

Ireland is, per capita, the most indebted country in the EU. Its budget deficit of 14.3% is higher even than in Greece. For a decade, the "celtic tiger" economy was the poster child of free-market globalisation. Now, this bedraggled alley cat of an economy is neo-liberalism's favourite example of how to cut your way to recovery. Ireland's government has slashed public sector spending by 7.5% of gross domestic product with a series of drastic cuts this year: public sector pay by 15%, child benefit by 10%, unemployment benefit by 4.1%. Another 3bn will be removed next year, a total of 10% of GDP over three years: these measures are equivalent to the British government slashing its budget not by the £6.25bn planned by George Osborne in 2010, but by an incomprehensibly gigantic £150bn.

As Frank pointed out above, the Irish Greens had the opportunity to stop the rot in a Party conference. Instead the opted for their own destruction and disaster for the citizens of the Republic.

The turn around from a sane, reasonably ethical party to total co-option by one of the most corrupt parties in Europe (Fianns Fáil) has been startling. In the past they haven't been a party that has indulged in the corruption and clientelism - like FF and the other civil war party - Fine Gael. They worried about peak fossil fuels, opposed unsustainable planning policy and spoke out for public transport.

However that was all sacrificed for a minor role in the most disastrous government in the Ireland's history and a few token bits of greenery thrown at them by Fianna Fáil. Since the bank guarantee it's as if they've had the moral and intellectual areas of their brains replaced by something from the FF clone-banks (which you can find behind a false wall in a pig farm in Co. Offaly, BTW).

Taoiseach Brian Cowen said today he does not accept the argument that it would be better for Ireland to default.

Responding to claims made by UCD academic Prof Morgan Kelly that the Government bank bailout will ultimately leave the State insolvent, Mr Cowen said the balance of evidence suggested a more optimistic scenario than that put forward by the professor.

Speaking in an interview with RTÉ radio earlier today, Mr Cowen again said he believed the Government's approach to dealing with the economic crisis was the correct one.

Writing in Saturday's Irish Times , Prof Kelly, who originally predicted the crisis, said the open-ended guarantee of banks' liabilities and the Nama bailout will leave the Republic with "a worse ratio of debt to national income than the one that is sinking Greece" by 2012.

However, this analysis was roundly rejected by the Taoiseach, who said there was evidence to suggest that Ireland was already in a better place than it had been.

"I think it is obviously true that one has to try and deal with some of the narrative that has been allowed to be formed which i think doesn't reflect a comprehensive or balanced commentary of where we are at," said Mr Cowen.

"Really implicit in some of the argumentation is the idea that it would be better for Ireland to default. But we simply don't accept that at all and I think all of the implications from other countries where that happens greatly undermines, not just in terms of financial credibility but also the ability to retain confidence at home," he added.

The Taoiseach said there was objective evidence available which confirmed that the Government was taking the right approach to dealing with the economic crisis. However he conceded that the approach chosen was "a difficult one that imposes its own hardships and difficulties for people."

Prof Kelly isn't saying Ireland should default, but that it should end the Guarantee of private banking debt and encourage bondholders to seek an equity for debt swap instead. Cowen seems to find it impossible to differentiate between the debts his developer cronies and the banks built up, and Ireland's national debt. L'etat - c'est moi et mes amis?

Unfortunately, Brian Cowen [the Irish Taoiseach / Prime Minister] isn't the Sun King. Louis XVI is far more his style. Last of the Fianna Fáil monarchs we hope, but that won't stop the peasants from starving in the mean time.

A bigger man (not in the dimensional sense - check out his photo) and a better leader would be able to admit that the guarantee was a mistake, or at least has served it's time.

It's not even AAA waffle - "doesn't reflect a comprehensive or balanced commentary of where we are at" - really who wrote that for him?

We'll see just how credible any of it is when those bonds start to roll over.